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23 January, 00:35

U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 19%. The firm financed 25% percent of its assets using debt. What was the firm's return on common equity? (Round your answer to two decimal places and state it in percentage form.)

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  1. 23 January, 01:04
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    Return on Equity = 25.33%

    Explanation:

    Return on Total Asset = 19%

    Debt percent to assets = 25%

    Equity percent to assets = 100% - 25% = 75%

    Asset = 100%

    Return on Total Asset = Net Income / Total Assets

    19% = Net Income / 100%

    0.19 x 1.00 = Net Income

    Net Income = 0.19

    Return on Equity = Net Income / Equity

    Return on Equity = 0.19 / 75%

    Return on Equity = 0.19 / 0.75

    Return on Equity = 0.2533

    Return on Equity = 25.33%
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